Rewards Cards Vs. Store Credit Cards: Which Is Best?

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Today, nearly every major chain store has a rewards card, a store credit card or both. Rewards cards give you rewards for what you spend without financing your purchase. For example, Big Lots gives you 20% off coupons occasionally with its rewards program. Store credit cards can help you earn points or earn cashback for future discounts. However, your purchases go on the card and are financed. Since there are many types of cards, research is important.

Store Rewards Cards

Store rewards cards are tied to company loyalty programs. Merchant rewards programs give you points, cashback, credit on your receipt or another form of reward when you shop or make certain types of purchases. 

For example, Starbucks gives you star points when you buy food, drinks or merchandise there. You can redeem those points for free items when you reach certain thresholds. However, AutoZone gives customers the ability to earn a $20 gift card if they spend $20 five times within 12 months. There are plenty of options. These are a few of the top store rewards cards:

  • Kohl's offers a $5 cash coupon for every $100 spent.

  • Ulta gives single, double or triple points for each $1 spent for certain items, and 100 points earn a $3 credit.

  • Best Buy's reward program offers points per dollar spent, and the points program is divided into three tiers of annual spending amounts.

The top benefit of choosing a rewards program is that it is completely free to apply for or sign up for a card. Also, you get access to exclusive rewards or discounts. Since store rewards card programs do not check your credit, there is no risk of your sensitive information being compromised if there is a data breach. This also means that there is no impact to your credit for applying.

The main disadvantage is that you must supply your email or mailing address, and these companies usually send frequent emails and monthly newsletters or advertisements. However, they may also send useful coupons.

Store Credit Cards

Store credit cards are similar to traditional credit cards. The main difference is that you can only use some store credit cards at the stores that supplied them or at sister stores. These are called closed-loop cards. 

For example, you can use Victoria's Secret credit card at Bath & Body Works or PINK stores. Not all stores have the same rules. Although Amazon bought Whole Foods, you cannot use your Amazon store credit card there. 

However, since the Amazon Prime Visa is an open-loop card, you can use it anywhere. Store credit cards come with interest, and you must make monthly minimum payments if you carry a balance. These are a few examples of some top-rated store credit cards:

  • The Target Red Card provides 5% off most Target purchases, free shipping on most Target purchases online and an annual 10% off coupon as a reward.

  • The Walmart store credit card offers 5% cashback for Walmart online purchases and 2% back for in-store purchases.

  • The JC Penney credit card comes with an exclusive savings day with extra perks, double or single points on store purchases and special financing on big-ticket purchases.

  • The Amazon store card offers 5% cashback for Prime members, special financing options and equal monthly payments for some items.

The main advantage of store credit cards is earning cash rewards. Also, some cards do not come with annual fees. If you can keep a low balance and pay off purchases quickly, you can use the discounts or points to your advantage if you already shop at those stores often.

With store credit cards, the biggest risks are financial mistakes. If you do not make your monthly payments on time, it can negatively impact your credit score. Most cards come with interest rates that exceed 20%. If you cannot pay down a large balance quickly, you may pay a lot of interest. You are subject to a credit check with any type of store credit card.

Which Card Is Best?

Credit cards may not be right for you if you are already struggling with debt. However, free rewards programs may help you save on your regular purchases. In general, they are a better choice for financial safety. If your finances and spending abilities allow the responsible use of a credit card, there are even more ways to get discounts, earn cashback and enjoy other benefits.

You may find several rewards cards that can help you save money. If you determine that you can also afford to use a credit card, look carefully at fees, interest rates, and limitations. If you want a credit card, pick one for a store that you already shop at frequently. This will ensure you're not too tempted to spend money you wouldn't otherwise spend, just to build up points or rewards.